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PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4320
Experience:  35 years tax experience, including four years at a Big 4 firm.
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I received two checks related to a client. One from a Defendants

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I received two checks related to a client. One from a Defendant's insurance company for $25,000 made payable to multiple payees for medical bills. This check was deposited into Trust account and Trust checks were written to each payee holding a claim. A second check in the amount of $60,000 was received from Client's insurance company payable to attorney and client. Client made arrangements with his bank to accept deposit of check with a Special POA giving him right to sigh check o he wouldn't have to wait for check to clear Trust account. I have received 1099 forms for both amounts and am not sure how to report such on my taxes. Client did not receive any 1099 forms but his tax preparer advised him the amounts were not taxable anyway. Do I report as refund to client or do I need to issue a 1099 to my client. If so, what box do I report it as?

PDtax :

Welcome to the site. I'm PDtax, and will be helping you today.

PDtax :

Can you tell me what capacity you are acting in?

PDtax :

If you're the attorney, this will be easy.

PDtax :

You provided an EIN or Social Security number for processing these payments. The tax return you file for your practice, Schedule C or business entity, will report income that matches the 1099's received for this client.

PDtax :

I like to report the distributions out on the same form, and for the same amount, so that there is reporting on your return but no income.

PDtax :

For example, the first collection for $25,000 can be disclosed as a 1099 income receipt on Schedule C. Then, on the same form, use an expense line as an other expense "DISBURSED ON BEHALF OF CLIENT XXXXX XXXXX (id#***-**-****). The net effect on your taxable income will be 0, and the 109 total will match the total IRS expects you to report.

Customer:

the attorney

PDtax :

The second can be reported in the same manner, with the disbursement going out to the client (and I like to identify the client with ID#) in effect in and out of an escrow or IOLA (New York's trust bank account for escrow funds) account.

PDtax :

Thought so.

PDtax :

Reporting on Schedule C?

Customer:

yes, Schedule C

PDtax :

Personal injury awards are exempt from tax to client under IRC 104. As such, 1099 reporting is not required.

Customer:

Perfect, thank you!

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